Reverse Mortgage Financial Assessment Will Take Effect on March 2015
The Department of Housing and Urban Development has finally announced that the financial assessment will come into effect on MARCH 2015.
While the financial assessment was previously announced as an upcoming change last October, it was not implemented in the past year. Next March, however, the financial assessment is poised to be one of the biggest changes in the reverse mortgage industry while adding another safeguard for future borrowers.
The financial assessment came about, largely, because of the reputation of the reverse mortgage. As a loan of last resort, many turned to the program when they were in dire financial need, making a bad situation worse, when there were not enough funds left over for borrowers to pay their property taxes and homeowners’ insurance.
Part of the changes that were implemented last October were to protect future clients, who obtained a reverse mortgage, by giving them access to their funds, but not all at once, so they may have more funds in the future to cover their financial obligations.
What does the financial assessment mean for future borrowers and the reverse mortgage program?
For the first time, credit and income will be taken into consideration when determining a borrowers’ eligibility.
Not like a forward mortgage but if a borrower has less than stellar credit and has had trouble keeping up with their payments then a mandatory, life expectancy set-aside will be required to ensure borrowers can make property taxes and homeowners’ insurance payments.
HUD describes the purpose of the financial assessment as:
“…mortgagees must take into consideration that some mortgagors seek a HECM due to financial difficulties, which may be reflected in the mortgagor’s credit report and/or property charge payment history. The mortgagee must also consider to what extent the proceeds of the HECM could provide a solution to any such financial difficulties.”
If a borrower has a sparkling payment history, however, then a set-aside will not be enforced.
Documentation necessary to determine if a borrower will require life expectancy set-asides includes, but isn’t limited to credit history documentation, asset verification, property charge verification and income verification.
For the reverse mortgage industry as a whole, this change is just another hurdle to overcome, and one that will strengthen the program in many consumers’ minds as a long term retirement planning tool and NOT a loan of last resort.
This has been the biggest struggle of all, changing public perception so that the reverse mortgage can finally be up to par with established retirement planning strategies.
Borrowers who are not in financial need, make their payments on time and have all their retirement planned, may benefit more from the program as an alternative option. With the line of credit option, borrowers can use their equity when they want and/or need to in order to supplement their retirement.
For borrowers who are considering the reverse mortgage but may want to wait for various reasons, now is the best time as the financial assessment may make some borrowers ineligible in the future because there may not be enough equity to cover the required set-asides and other financial obligations such as property liens or student loans.
In order to protect borrowers, HUD will have to ensure they can meet financial obligations in a timely manner. The financial assessment will do just that.
Interested in a reverse mortgage or simply want more information? Give PS Financial Services a call at (888) 845-6630 or via email at email@example.com. We don’t pressure those who inquire. We are simply here to help.